Is your IT delivering value? Why now is the time for IT cost optimisation

05 June 2020

Kamal Prasad, Partner, Digital & Technology Advisory |

When it comes to investing in the future of your business, building your digital capability leads to increased growth, profits and efficiency. In a survey of 600 C-suite executives at middle-market organisations by BDO USA, 68 percent said that digital investments led to increased revenues in the previous 12 months, with many looking to invest in operational efficiency, customer experience and digital resilience in the future.

However, the business landscape has shifted considerably since the beginning of the year. Many businesses are now in a situation where they must re-evaluate their business goals as managing cost and optimising cash flow is prioritised above all else. As a result, many business leaders will be in a difficult position where they must review all their activities, projects and systems to make cost reductions to improve cash flow.

While this can seem simple at first – i.e. stopping the activities that deliver the least value – determining what the value and effectiveness of each activity, system and process is and how they compare can be quite challenging. For example, a business could depend on a costly piece of software for inventory management which while not directly drives revenue saves significant time costs compared to a more manual process. Another example could be a business part way through a digital transformation project that may not provide significant benefit at the moment, but if stopped or set back could negatively affect business performance or client relationships in the future.

IT Cost benchmarking as the first step to sustaining IT Cost Optimisation

This is where tools such as IT cost benchmarking can bring significant value to businesses as they assist businesses with identifying areas where cost savings and improvements can be made while ensuring the same or a better level of service and quality is still delivered to customers.

IT cost optimisation starts with a top-down assessment of a business’s IT cost and effectiveness in comparison to other businesses. This helps businesses to identify if there are opportunities to improve IT costs and if so, in which area.

Typical benchmarks could include:

  • IT cost as a percentage of Revenue or Operating Expenses
  • Amount ($) spent on IT per user or employee
  • Percentage of IT spend on support
  • Percentage of IT spend on new IT initiatives
  • Resource mix ratio – internal vs external
  • Spend-per budget area, e.g. security, cloud, people, network.

The IT cost benchmarking typically highlights a range of options that can be pursued to deliver tangible cost savings or reduction.

The common over-spends when it comes to IT expenditure

Over time, it is not uncommon to see IT expenditures get out of hand. Depending on your core business function, overspends could include;

  • Application costs, particularly for out of support legacy applications which have a high total cost of ownership (maintenance costs, enhancement costs and cost of workarounds due to unsupported processes)
  • Vendor costs, particularly where the costs are not in line with the vendor's performance
  • External contractor costs
  • Outsourcing costs where the fee metric is out of date and not aligned to business needs
  • Data storage and management costs
  • Cloud services compute costs
  • Support costs for legacy systems and software
  • Hardware maintenance costs
  • IT project overruns
  • Unused hardware (e.g., desktops, servers, desk phones, etc.).

These overspends are often driven by the productivity of your team, architecture and design choices made and, the resulting infrastructure that is required to build or support the business processes. So understanding the drivers of your key metrics is just as important to deliver sustained IT cost optimisation.

What steps can you take to effectively deliver IT cost optimisation?

  1. Undertake IT cost benchmarking.
  2. Establish a structure IT Cost Optimisation approach - IT Cost Optimisation should be an on-going discipline. A structured approach will help gain maximum value out of the tactical and strategic initiatives.
  3. Deliver on the low hanging fruits and build momentum and credibility. For example, leverage robotics process automation to reduce labour costs.
  4. Engage the business to educate and establish a culture of IT ‘cost consciousness’ and optimisation.

Some final things to keep in mind if you’re looking to undertake IT cost optimisation

As you embark on sustainable IT cost optimisation, avoid:

  1. Cutting the wrong costs – i.e. understand what’s a priority – Opex/Capex/Both?​
  2. Keep one eye on your risks and imperative services like Cyber​
  3. Don’t launch in isolation – communicate and engage stakeholders​
  4. Understand that some cost reductions rely on stable, standardised and mature services
  5. Don’t focus just on the $’s​
  6. Don’t create technology debt for the sake of savings $’s.

Do you know the top 10 IT optimisation opportunities in your business?

Watch our video with Technology Advisory Partner, Kamal Prasad, on how businesses and organisations can optimise and reduce their IT expenditure while still maximising value.

Watch the webinar

How can we help?

Our Technology Advisory team provides a full range of IT cost and service level optimisation and benchmarking services to ensure your business’s IT expenditure is delivering value at the appropriate cost.

We also provide a range of other technology services including, strategy and planning, business intelligence, data analytics and advanced analytics, technology risk assessment and management, digital transformation, IT assurance and IT Program and Project Management.

To find out more about our Technology Advisory team and further services, contact Kamal Prasad or visit our Technology Advisory page.

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